Build Back Manchin—Now the ‘Inflation Reduction Act of 2022’—Is Back and Includes 15% Corporate AMT

July 29, 2022

By Stuart E. Leblang, Michael J. Kliegman, and Amy S. Elliott

For those of you who are tired of following the floated possibilities and then dashed hopes (or— depending on your perspective—welcome relief) concerning the enactment of a tax and spending reconciliation bill[1]involving Sen. Joe Manchin III (D-WV), there has been a shocking development:  The finish line is in sight! On a regular basis over the last several months, new details about what might or might not be part of an agreement have leaked out in the press, and, up until recently, those developments had not changed our general thinking that the odds were low that new law would come from this exercise by the end of the year.

But late in the afternoon on July 27—just a mere five hours after the Senate passed the semiconductor chips manufacturing bill[2](providing $280 billion of funding for domestic semiconductor manufacturing and federal scientific research and development)—those odds dramatically changed.  (For those in need of a refresher on the history of the tax and spending reconciliation bill—once dubbed Build Back Better (or BBB)—read on in the footnote.[3])

Sen. Manchin’s ongoing negotiations with Senate Majority Leader Chuck Schumer (D-NY) and his staff have finally borne real—and surprisingly significant—fruit.  In a series of press releases, both Sen. Manchin and Leader Schumer announced that a $739 billion agreement[4]had been reached on legislative text[5]that, in Sen. Manchin’s words, is “focused on solving our nation’s major economic, energy and climate problems.”[6] Leader Schumer said the bill would “lower prescription drug prices, tackle the climate crisis with urgency and vigor, ensure the wealthiest corporations and individuals pay their fair share in taxes, and reduce the deficit.”[7]The Senate is (optimistically) aiming for a vote next week, and President Biden announced his support for the effort.[8]One of many unknowns is Sen. Kyrsten Sinema’s (D-AZ) position on the legislation.[9]

So what’s in the Inflation Reduction Act of 2022?[10]Let’s start with the so-called payfors—the tax and other revenue raisers:

 

Payfors

Inflation Reduction Act of 2022[11]

15% Corporate Alternative Minimum Tax (AMT) on Book Income

$313 billion— This is slightly higher than the House-passed BBB score of $298 billion.[12]This provision only applies to companies that report over $1 billion in annual profits averaged over a three-year testing period (approximately 200 corporations—although certain foreign-parented corporations may be subject to the tax at a lower threshold).  The language is almost exactly the same as what was in the House-passed BBB, with an added expansion of Treasury’s regulatory authority.  (Of note, Sen. Sinema tweeted her support for this type of proposal back in 2021.)[13]

Prescription Drug Price Controls

$288 billion— This is slightly lower than the House-passed BBB score of $297 billion[14]but is the same score as a revised proposal[15]that Senate Democrats submitted to the parliamentarian July 6.  The revenue largely stems from lowering prices through drug price negotiations, prescription drug inflation rebates and repeal of the prescription drug rebate rule.  The slight score difference between the two is primarily caused by pushing back various implementation timelines.  (Of note, Sen. Sinema supported the prescription drug reforms that ended up in House-passed BBB.)[16]

Carried Interest[17]Tax Changes

$14 billion— Although the House-passed BBB did not contain any changes to the tax treatment of carried interest, this proposed text and score is almost exactly the same (the only change is to push the effective date back from 2022 to 2023) as what was in the House Ways and Means Committee BBB draft.  It would extend the three-year investment holding period in Section 1061—a requirement for accessing the lower tax rates available for carried interest—to five years for taxpayers with adjusted gross income of $400,000 or more.  Importantly, the five-year clock wouldn’t start ticking until, the later of (i) when the fund has acquired substantially all of its investments, or (ii) when the fund manager has acquired substantially all of the carry (which could expand the practical impact of the rule to apply to nearly all hedge funds).  Further, Treasury was given regulatory authority to address the use of so-called carry waivers (or management fee waivers) to avoid the impacts of the tax changes.  Sen. Sinema has reportedly opposed efforts to increase the tax on carried interest,[18]but removal of the provision could be politically challenging at this stage.

IRS Tax Enforcement

$124 billion— This is lower than the $207 billion score in the House-passed BBB, but both would increase the IRS’s tax enforcement and compliance budget by $80 billion over 10 years.  The Congressional Budget Office has apparently updated its prior estimate[19]and now believes that such an investment will result in $203 billion of increased collections revenue, netting a total of $124 billion.

 

Note the payfors do NOT include international tax changes (namely, planned changes to the global intangible low-taxed income (GILTI) rules to ensure that the United States has a 15-percent global minimum tax in time for it to comply with its the global tax agreement commitment), a new surcharge/surtax on the wealthy, the floated stock buyback excise tax or efforts to close the net investment income tax loophole for the wealthy.

As for the spending, some $306 billion of the revenue from the payfors will be used to reduce the deficit (something the House-passed Build Back Better Act did not spend any money on, even though it is a priority of Sen. Manchin’s).  The rest ($433 billion) will go to just two priorities:  climate (namely, various provisions targeting energy and the environment, the scale of which have been reduced from $555 billion in the House-passed BBB to now $369 billion) and health insurance subsidies (namely, extending the Affordable Care Act (ACA) premium subsidies through 2025 at a cost of $64 billion, which is more limited than what was proposed in the House-passed BBB, which came in at a price tag of $131 billion).  This smaller spending package means that Democrats should be prepared to say goodbye to near-term efforts to expand the Child Tax Credit, provide for four weeks of federal paid family and medical leave, provide free preschool for 3- and 4-year-olds and increase Medicaid’s reimbursement rate for at-home eldercare.

Democrats seem more than willing to jump on board.  The climate provisions of the bill include many significant changes to preexisting clean energy tax credits, including an extension of the Section 25D residential solar investment tax credit (the rate of which was increased from its current 26 percent to 30 percent for 10 years) and a removal of the volume cap associated with the Section 30D electric vehicle tax credit (meaning that manufacturers that had exceeded the cap such as Tesla and General Motors may now once again sell cars that are eligible for the tax credit).  Lawmakers claim[20]—and an outside group has agreed[21]—that the climate provisions in the deal would reduce the level of U.S. greenhouse gas emissions by roughly 40 percent (when comparing what they were in 2005 to what they are projected to be in 2030).

Importantly, the agreement does not address what (at one time) was a make-or-break issue for many House Democrats representing high-cost-of-living states—the repeal (in whole or in part) of the $10,000 state and local tax (SALT) deduction cap.  We now think that SALT will likely stay out of the deal.[22]While certain lawmakers may make noise about the omission, we do not expect this issue will cause the bill to fail.[23]

Democrats are facing significant time pressure as they rally to push the deal through before the August recess, which is scheduled to begin August 8 in the Senate (although Senators have already been instructed to prepare to work through next weekend[24]).  While today is the last day members of the House of Representatives are in town before breaking for their August recess, they are expected to return for a few days in early to mid-August for votes.[25]It can take several days (sometimes much longer) for the Senate parliamentarian to determine whether provisions in a bill of this size might be considered extraneous—that is, in violation of the Byrd Rule (2 U.S.C. §644)—although that work started before July 27.  In addition, all 48 Democratic Senators (plus the two Independents who caucus with them) will have to be in attendance—and not out with COVID-19 or other reasons[26]—for the vote.

What Exactly Is the 15% Corporate AMT?

Now that the chances of the latest Build Back Manchin iteration passing have significantly increased, we thought it warranted a refresher on the largest tax payfor in the bill—the 15-percent corporate AMT (alternative minimum tax) or so-called book min tax.  This is completely separate from the 15-percent global minimum tax mentioned earlier.[27]Note that the effective date of the book min tax proposal remains the same as what it was in the House-passed BBB bill.  It would go into effect for taxable years beginning after December 31, 2022, even though this gives Treasury impossibly little time to promulgate necessary regulations.  The poster child target corporation for this tax often cited by lawmakers is Amazon.com, Inc. (NASDAQ:  AMZN) (but see the end of this report for more companies likely in the crosshairs).

As we have previously reported, this provision is roughly targeted at the biggest 200 companies[28]—those that report over $1 billion in annual profits averaged over a three-year testing period[29](taking into account so-called single employer aggregation rules).  While it adopts some very unusual features (in that it calculates the tax by reference to adjusted financial statement income), they are embedded within a familiar construct (the historic corporate AMT regime that existed in the tax code from 1987 through 2017).

At a high level, if, after calculating both its regular tax liability using the normal corporate income tax base (and the existing statutory corporate income tax rate, which is currently 21 percent) and the tax liability under this new 15-percent corporate AMT (using modified financial statement income—or book income—as the tax base), the latter amount is higher, then the corporation will add the difference to its regular tax bill.  A corresponding AMT credit mechanism will ensure that corporations that pay the AMT will effectively be paying the regular tax they would have owed in the future, but on an accelerated timeline.

The proposal’s reliance on financial statement income to determine the AMT amount has alarmed and frustrated groups such as the American Institute of Certified Public Accountants and the Tax Executives Institute—both of which have cautioned that there will be significant negative impacts to such a design.  The details are complicated, as “adjusted financial statement income”—upon which the AMT calculation is based—will be modified for items such as related dividends, controlled foreign corporation (CFC) income and disregarded entities.

This new tax generally would be most painful for firms that shrink their tax bills using deductions for accelerated depreciation (to reduce the cost of machinery and equipment— think manufacturers) and for employee stock options (Internal Revenue Code Section 423).  In fact, the Joint Committee on Taxation released an estimate July 28 projecting that corporations in the manufacturing industry would bear nearly half (49.7 percent) of the new tax.  Companies in other industries bearing the burden include those in the information industry (11.5 percent), holding companies (11.2 percent) and companies engaged in either wholesale (9.3 percent) or retail (4.9 percent) trade.[30]

There are reports that Sen. Sinema is troubled by the corporate AMT’s attack on cost recovery and accelerated depreciation[31]—but the word-on-the-street is that if those deductions are allowed in the AMT calculation, it would reduce the revenue score dramatically (by tens of billions of dollars).  (Prior concerns regarding accounting for pension plan income and expenses in the AMT calculation were addressed by changes to the proposal made back in December 2021 by the Senate Finance Committee, but Republican Committee members since argued the carve-outs were “hastily added” and could result in unintended consequences.[32])

Note that not all companies that report more than $1 billion in book pretax income and have effective tax rates below 15 percent would necessarily be subject to this new corporate AMT given the intricacies of how the tax is calculated (and the significant regulatory authority given to Treasury that will have to-be-determined effects on such calculations).  The new AMT would allow some net operating loss (NOL) carryovers each year, but such carryovers would be capped at 80 percent of the corporation’s adjusted financial statement income, so that NOL carryovers on their own could not entirely zero out a corporation’s tax bill.  Further, while the proposed regime would allow for general business credits (including the R&D tax credit, low-income housing credits and clean energy credits such as the production tax credit) to reduce the AMT, such reductions would be subject to limitations[33]and practitioners have argued that the regime could also limit foreign tax credits (FTCs) in cases of companies with high-tax CFCs.[34]

Despite the fact that this book min tax rubs many tax policy experts the wrong way, others have come to terms with it.  Speaking at a June 30, 2022 event sponsored by the Urban-Brookings Tax Policy Center, Kimberly Clausing, former Treasury Deputy Assistant Secretary for Tax Analysis, noted that although it would be more efficient to simply do away with the tax preferences that enable corporations to achieve an effective tax rate below 15 percent, such a move would not be politically feasible as it would amount to “death by a thousand cuts.” Further, she said implementing the corporate book min tax is smart at a time when we’re heading into a possible recession, given that it only kicks in when a company is very profitable.

Market-watchers want to know which profitable companies are most likely to be impacted.  When the proposal first showed up in Build Back Better, various news organizations pored through available public data to try to answer that question.  According to an analysis by The Wall Street Journal,[35]more than 60 companies in the S&P 500 reported more than $1 billion in book pretax income and had effective tax rates below 15 percent in 2019 or 2020.  While not all of them would necessarily be subject to the book min tax, some of the companies named in the article as potentially at-risk include not just Amazon, but also Pfizer Inc. (NYSE:  PFE), Stanley Black & Decker, Inc. (NYSE:  SWK), Archer-Daniels-Midland Company (NYSE:  ADM) and Xcel Energy Inc. (NASDAQ:  XEL).  A similar analysis by The Washington Post[36]also identifying companies potentially at-risk included Verizon Communications Inc. (NYSE:  VZ), Alphabet Inc. (NASDAQ:  GOOGL), Morgan Stanley (NYSE:  MS), Comcast Corporation (NASDAQ:  CMCSA), Intel Corporation (NASDAQ:  INTC), JPMorgan Chase & Co. (NYSE:  JPM), PepsiCo, Inc. (NASDAQ:  PEP), The Procter & Gamble Company (NYSE:  PG), The Coca-Cola Company (NYSE:  KO) and Facebook (now Meta Platforms, Inc.) (NASDAQ:  FB).

A still rough but more considered approximation by Tax Analysts’ Martin Sullivan[37] (that took into account expected increased foreign taxes) only resulted in about nine companies likely having to pay the proposed minimum book tax over a period of three years, including Berkshire Hathaway Inc. (NYSE:  BRK.A), Bank of America Corporation (NYSE:  BAC), Intel Corporation (NASDAQ:  INTC), Verizon Communications Inc. (NYSE:  VZ), Federal National Mortgage Association (Fannie Mae), Amazon.com, Inc. (NASDAQ:  AMZN), AT&T Inc. (NYSE:  T), The Goldman Sachs Group, Inc. (NYSE:  GS) and NextEra Energy, Inc. (NYSE:  NEE).


[1] In this case, Senate Democrats are using special procedures to pass a bill by a simple majority (so that if 50 senators—all those who caucus with the Democrats—and the Vice President agree, the law can be changed).

[2] CHIPS and Science Act (the CHIPS+ bill), S. Amdt. 5135 to H.R. 4346; The House passed the bill July 28, 2022, even though, following the July 27, 2022 announcement about the Inflation Reduction Act agreement, House Republican leaders reportedly sent a notice to their members urging them to vote against the CHIPS+ bill. Senate Minority Leader Mitch McConnell (R-KY) had threatened that he would prevent the CHIPS+ bill from coming to the floor for a vote in Senate “as long as Democrats are pursuing a partisan reconciliation bill.” For more details about what it is in the CHIPS+ bill, see:  https://www.akingump.com/en/news-insights/senate-passes-chips-plus-package-house-passage-imminent.html

[3] The Build Back Better Act (H.R. 5376) was passed by the House of Representatives on November 19, 2021, scored at $1.75 trillion. For the full text as passed by the House, see https://www.congress.gov/117/crec/2021/11/18/167/201/CREC-2021-11-18-pt1-PgH6375-4.pdf (which is different than the text that was passed out of the Ways and Means Committee:  https://www.congress.gov/117/bills/hr5376/BILLS-117hr5376rh.pdf). The tax provisions of the $1.75 trillion House-version were then scaled back by the Senate Finance Committee less than a month later when it released a modified version of the tax title on December 11, 2021 (https://www.finance.senate.gov/imo/media/doc/12.11.21%20Finance%20Text.pdf; for JCT’s preliminary score see https://www.democrats.senate.gov/imo/media/doc/21-2093.pdf). On December 14, 2021 Sen. Manchin reportedly offered to support a deal in the $1.8 trillion range before announcing on Fox News December 19, 2021 that he could not vote for the legislation (https://www.washingtonpost.com/us-policy/2021/12/20/manchin-biden-child-tax-credit/).

[4] Although an estimated $739 billion in revenue will be raised, some $306 billion of it will be used to reduce the deficit—so only $433 billion will be spent (on lowering costs for families under the Affordable Care Act and on providing tax credits and other investment to support energy security and fight climate change.

[5] For more details about the bill, including the legislative text and various summaries, see https://www.democrats.senate.gov/inflation-reduction-act-of-2022.

[6] Press Release, Sen. Manchin, Manchin Supports Inflation Reduction Act of 2022 (July 27, 2022) (https://www.manchin.senate.gov/newsroom/press-releases/manchin-supports-inflation-reduction-act-of-2022).

[7] Press Release, Leader Schumer, Schumer Statement On Agreement With Senator Manchin To Add Climate Provisions To The FY2022 Budget Reconciliation Legislation And Vote In Senate Next Week (July 27, 2022) (https://www.democrats.senate.gov/newsroom/press-releases/schumer-statement-on-agreement-with-senator-manchin-to-add-climate-provisions-to-the-fy2022-budget-reconciliation-legislation-and-vote-in-senate-next-week).

[8] Press Release, President Biden, Statement from President Biden on Inflation Reduction Act of 2022 (July 27, 2022) (https://www.whitehouse.gov/briefing-room/statements-releases/2022/07/27/statement-from-president-biden-on-inflation-reduction-act-of-2022/).

[9] “Sinema did not attend [Senate Democrats’ meeting the morning of July 28, 2022]. Sinema’s office says she’s still reviewing the text,” as reported by Eugene Daniels and Eli Okun, Playbook PM:  How the White House is spinning the new GDP numbers, POLITICO Playbook PM, July 28, 2022 (Subscription required).

[10] For legislative text of the Inflation Reduction Act of 2022, see https://www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_of_2022.pdf.

[11] All of the revenue estimates for the Inflation Reduction Act of 2022 payfors are from the one-page summary released by Senate Democrats July 27, 2022. Note that some of these estimates are from the Joint Committee on Taxation while others are from the Congressional Budget Office, as noted in the document:  https://www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_one_page_summary.pdf.

[12] This number comes from the “Very Preliminary” JCT score, dated Dec. 20, 2021, of the Finance Committee’s BBB tax title (as published by TAX NOTES, subscription required), which is $21 billion less than the JCT score in JCX-46-21.

[13] Sen. Sinema tweeted Oct. 26, 2021 that the 15% corporate minimum tax proposal “represents a commonsense step toward ensuring that highly profitable corporations . . . pay a reasonable minimum corporate tax” (https://twitter.com/SenatorSinema/status/1453104201463123973).

[14] See the tab for Subtitle I. Drug Pricing, 2022-2031 at https://www.cbo.gov/publication/57626.

[15] Of the $288 billion estimated 10-year impact on the budget, about $249 billion is from reduced spending and more than $38 billion is from increased revenues (https://www.cbo.gov/system/files?file=2022-07/senSubtitle1_Finance.pdf and https://www.finance.senate.gov/imo/media/doc/070622%20Prescription%20Drug%20Pricing%20Reform%20Leg%20Text.pdf)

[16] Sen. Sinema “negotiated a prescription drug reform deal that’s being added to the roughly $1.75 trillion spending bill. Though it falls short of progressive hopes of huge reform, [the senator] believes it balances lowering costs for seniors without stifling innovation, according to an aide,” as reported by Burgess Everett and Marianne Levine, Sinema strikes back, PoliticoPro, Nov. 17, 2021 (subscription required).

[17] So-called carried interest allows certain investment managers, among others, to arguably convert what some view as compensation in exchange for services that should be taxed at ordinary rates into investment income taxed at lower long-term capital gains rates.

[18] Sen. Sinema “has previously indicated resistance closing what's known as the carried interest loophole, which currently allows certain financial firms to pay lower tax rates on their earnings. And Manchin, after securing closure of that loophole in the current deal, told reporters Thursday he's unwilling to budge on it,” as reported by Marianna Levine and Anthony Adragna, Dems start racing the clock — and Senate rules — to pass Manchin-blessed deal, PoliticoPro, July 28, 2022 (subscription required).

[19] Earlier CBO letter:  https://www.cbo.gov/system/files/2021-12/hr5376_letter.pdf

[20] https://www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_one_page_summary.pdf

[21] https://rhg.com/research/inflation-reduction-act/; Note, however, that the potential 40% reduction the bill would achieve compares to a reduction in the range of 24% to 35% under current law.

[22] To help understand this dynamic, see quote from Rep. Tom Malinowski (D-NJ):  “We needed to see SALT in any bill that reopened the 2017 tax bill, that had other tax impacts on our middle-class constituents. This doesn’t do that. This is a bill on a completely different set of issues. . . . None of us said we were not going to vote for any bill coming out of the Senate unless it deals with SALT,” as reported by Jordan Carney and Sarah Ferris, House Dems find a surprise unifier:  Joe Manchin, PoliticoPro, July 28, 2022 (subscription required). That same article stated that:  “Pelosi predicted to reporters that she would have the votes to pass the party-line deal on her side of the Capitol.”

[23] Note that this reflects a change in our prior thinking, see:  “Corporate Minimum Tax May Be Falling Out of Favor as One of the Payfors to Fund Smaller Build Back Better Bill” (Feb. 4, 2022).

[24] Zach C. Cohen, Emily Wilkins and Alex Ruoff, August Recess Start Date in the Air as Senators Await Ruling, Daily Tax Report, July 28, 2022 (subscription required).

[25] Note that special elections scheduled in August in Minnesota and New York could impact the number of House Democrats.

[26] Sen. Dick Durbin (D-IL) tested positive for COVID-19 on July 28, 2022 and is in isolation until Aug. 2, 2022 while Sen. Patrick Leahy (D-VT) has been out for weeks after breaking his hip.

[27] Although, as it turns out, the book min tax may impact the global min tax in certain cases. If U.S. companies pay more U.S. taxes as a result of the book min tax, then other countries may be less able to collect more tax from those companies under the undertaxed profits rule (UTPR), which is a backstop to the global min tax and part of the larger so-called Pillar Two agreement, which is comprised of the Global anti-Base Erosion or GloBE rules.

[28] Although S corporations, regulated investment companies and real estate investment trusts are excluded.

[29] However, the new corporate AMT would also apply to certain foreign-parented corporations (those with at least one domestic subsidiary or at least one entity that is engaged in a trade or business within the United States in their group) that report over only $100 million in annual profits effectively connected with the conduct of a U.S. trade or business averaged over a three-year testing period. If such a foreign-parented corporation is within scope, then it must take into account the adjusted financial statement income of all of its group members (but only to the extent such income is effectively connected with a trade or business in the U.S.) for purposes of calculating its corporate AMT liability.

[30] This document is available through Tax Analysts (subscription required), as released by Senate Finance Committee ranking member Mike Crapo, R-Idaho.

[31] TAX TAKE:  Democratic Wishful Thinking on the Corporate Book Income Minimum Tax?, Miller Chevalier, May 9, 2022 (https://www.millerchevalier.com/publication/tax-take-democratic-wishful-thinking-corporate-book-income-minimum-tax).

[32] Supra note 23.

[33] The amount of Section 38 general business credits allowed to offset the corporate AMT will be limited to 75% of the corporation’s normal income tax minus any corporate AMT that exceeds $25,000 (see amendment to IRC §38(c)(6)(E)).

[34] “Build Back Better Act” tax proposals in House bill, KPMG analysis and observations, updated Nov. 19, 2021 (https://assets.kpmg/content/da m/kpmg/us/pdf/2021/11/tnf-bbba-tax-proposals-pending-house-bill-nov11-2021.pdf).

[35] Theo Francis and Kristin Broughton, Who Could Pay More With a 15% Corporate Minimum Tax? Not Just Amazon, WALL ST. J., Oct. 28, 2021 (https://www.wsj.com/articles/who-could-pay-more-with-a-15-corporate-minimum-tax-not-just-amazon-11635429418).

[36] Kevin Schaul, Democrats’ minimum tax proposal could hit these ultra-profitable corporations, WASH. POST, Nov. 5, 2021 (https://www.washingtonpost.com/business/2021/11/05/minimum-corporate-tax-rates/).

[37] Martin A. Sullivan, Estimated Effects of Proposed 15 Percent Minimum Tax on Individual Companies, TAX NOTES, Nov. 1, 2021 (subscription required).

 

Share This Page

Deal Analytics

Timely analysis on the risks and opportunities of corporate events with a focus on tax, giving high-stakes investors an edge.

© 2025 Akin Gump Strauss Hauer & Feld LLP. All rights reserved. Attorney advertising. This document is distributed for informational use only; it does not constitute legal advice and should not be used as such. Prior results do not guarantee a similar outcome. Akin is the practicing name of Akin Gump LLP, a New York limited liability partnership authorized and regulated by the Solicitors Regulation Authority under number 267321. A list of the partners is available for inspection at Eighth Floor, Ten Bishops Square, London E1 6EG. For more information about Akin Gump LLP, Akin Gump Strauss Hauer & Feld LLP and other associated entities under which the Akin Gump network operates worldwide, please see our Legal Notices page.